How to Build Credit the Smart Way

A great way to build credit is by making on-time credit payments every month.

How to Build Credit with a Credit Card

Any credit card, including a secured card, works well for this. Just choose a routine monthly expense, charge it on your credit card and pay the account in full each month.

Payment history makes up 35 percent of your credit score, so making a series of on-time payments can really help your score.

A secured card is a good option for consumers with no or very little credit. After a year or so of on-time payments, you’ll build enough credit to qualify for an unsecured credit card.

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How to Build Credit without a Credit Card

Another option for building credit the smart way is through a credit builder loan from a credit union.

A credit builder loan is an installment loan with terms ranging from six months to 18 months. Because credit builder loans are reported to one or more of the three national credit reporting agencies, on-time payments of the loan will build up your credit.

It’s a good idea to choose a credit builder loan that reports to all three credit reporting agencies — Equifax, Experian and TransUnion. That way you’ll get the credit for your on-time payments in credit reports from each of these companies.

With a credit builder loan, a lender places the money being borrowed into a savings account on your behalf and you pay off the loan through a series of monthly payments. You get access to the money in the savings account when the loan is paid in full.

So with a credit builder loan, you build credit and you build up some savings, too. Loan amounts for credit builder loans may be small, just $500, so you won’t need to struggle to make monthly loan payments.

Just be sure to make those payments on time each month. If you don’t, late or defaulted payments will be reported on your credit report. And you’ll wind up hurting the credit you’ve been working so hard to build.

Building good credit takes time. Monitor your credit standing using Credit.com’s Free Credit Report Card. You’ll get a free credit score and you can check your progress every month.

Vivienne Hall

Looking forward to my credit to be back where it use to be, 720+

Travis Price

As Deb said, they do matter when you apply for a rental, they offer discounts of auto insurance and some jobs look at your credit to judge fiscal responsibility.

Top Five Credit Report Questions

Meet Our Expert

Lucy Lazarony is a freelance personal finance writer. Her articles have been featured on Bankrate, MoneyRates, MSN Money, and The National Endowment for Financial Education. Prior to freelancing, she worked as a staff writer for Bankrate for seven years. She earned a bachelor's degree in journalism from the University of Florida and spent a summer as an international intern at Richmond, The American International University in London. She lives in South Florida.

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